Switching Chairs at SEC Delays Market Structure Changes
January 24, 2013
That release sought industry comment on how to create metrics that effectively tracked “market quality,” ensured fairness of highly automated markets, look at whether any high-frequency trading practices needed regulation and whether such developments as dark pools and co-location of trading equipment under the same roofs as the matching engines of exchanges needed review and possible regulation.
The document did “a good job of laying out market structure issues,’’ but got forgotten after the Flash Crash hit, he noted. And, instead of a holistic approach to markets, he and Weiss said regulators and Congress have taken a more “piecemeal” approach to market issues.
“I kind of fear that will make markets more complex,’’ rather than clearer, said Phil Mackintosh, managing director of investment banking for Credit Suisse in New York.
And delay only makes it worse. Abe Kohen, a developer for trading systems supplier Flextrade, cited the industry’s attempts to implement price bands on stock trading, under the so-called “limit up, limit down” rules that the SEC mandated as a second wave of circuit breaking after the Flash Crash.
He waved a four-page document full of acronyms that was one company’s explanation of how to carry out the rules, in their systems. The jargon- and acronym-filled pages defied understanding, he said.
‘If anybody really understood this, I would be really surprised,’’ he said.
With the chairmanship up in the air, companies won’t be investing in new ways of trading, said Sebastiaan Koeling, managing director at Optiver.
And the emergence of a litigator at the top of the SEC also could freeze market players.
The SEC is likely to follow the lead of the Commodity Futures Trading Commission, said John Superson, managing partner of Sumo Capital in Chicago, and pursue rule-making that could force chief compliance officers to confirm that his or her firm is in compliance with all laws and regulations – and stand to take personal liability if not.
"My fear is making CCO's personally liable for any failures or violations of the firm," he said, will make it hard to find talent to fill the role.
“People would rather sail off into the sunset and sell sweaters on eBay,’' he said.
And if a firm indemnifies the CCO, regulators will be less likely to settle cases, the market participants said.